Hi! I'm Jenny Rae, the Managing Director of Management Consulted, and I'm back
today and we're starting a new series. We're calling this advanced case interviews,
and we're going deeper into the case interview puzzle to try to help
you understand some of the really key issues that you need to be aware of if
you're going to solve case interviews consistently and well. One of the most
important things that you need to know about what we're going to cover today,
which is case frameworks, is that by no means are we covering everything that we
could say about case frameworks in this one video. In fact, we're barely doing it
justice because the single topic alone when we're doing an eight hour bootcamp
takes up two to two-and-a-half hours of the ultimate time together. So today
we're just going to glance over a high-level view of this but we do have
more resources available in our Consulting Interview Bible, in our
one-on-one sessions, and also in our eight hour boot camps - if you want to
come to one of those or invite us to come to you. I just wanted to make sure
that we said that before we get started so you didn't think that this video
alone was the ultimate authority on case frameworks. So let me dive into what
we're going to talk about today on case frameworks. First of all, as you know from
the anatomy, case frameworks are what you use to solve and open the case.
It's really important that you think of both of them, not just to open the case, but
also to solve the case because the frameworks are meant to be highly
practical, very action-oriented, and incredibly clear when you're walking
through the process. As a walk through the four key management consultant
frameworks that we recommend you use to solve any case you could potentially find.
Hopefully what you'll see is that all of these are very action-oriented,
they are very clear, and they're also driven by two levels of data, not just
the high level of data, not just a conceptual understanding of a topic but
actually a data-driven metrics based analysis at the lower level.
So there are four key frameworks that we're going to talk through today.
The first framework is market sizing. Market sizing is one of my favorite
frameworks. It rarely comes up as a standalone framework in a case, unless
you're doing a screening round case, or unless the interviewer has had so much
fun talking to you and your fit portion of the interview that they just have a
brief period of time in which to use the case on you.
The market sizing case is more aptly used as practice for either the math
portion of a case or for just general structure and communication. It's a great
entree into cases if you've never done cases before - market sizing is where you
should start. The keeper market sizing is breaking
them up to the same three pieces that you break math up into: first the algebra,
the steps that you'll use to break down the problem, second the assumptions that
you'll need to make in order to make sure that you understand what key data
points you're going to fit into that structure, and finally the calculations.
The calculations are great tests for beginning to work with big numbers and
they help you get smart on an industry really quickly. Market sizing cases can
be solved with two variations of the framework - one is top-down, usually starts
with a population approach, so a very large number and that pairs it down to a
smaller issue, the other is bottom-up we're often you'll focus on a channel of
distribution or a place where something is sold, and you'll identify in that
channel how much of something is sold, for example in a day, and then you'll
roll it up to the annual and countrywide, for example, numbers which are much
bigger. So top-down - big numbers to smaller, bottom-up - small numbers to
larger. Those two approaches together are really effective for the market sizing case.
Moving on from market sizing - the second type of case and probably the
most important that you will need to, not only memorize but more importantly,
understand for case interviews is the profitability framework. Profitability is
made up of two key balancing sides of the equation, one part is revenues and
the other part is costs. Hopefully at the end of the day your revenues and the
clients revenues that you're serving exceed their costs. That's one of your
goals as a consultant to make sure that happens and continues to happen into
perpetuity. How do you analyze revenues and costs underneath the key level of
the high level? Well the first thing that you need to do is break down revenues
into prices and volumes. Revenues aren't just a large number, a company doesn't
just make something off of one sale every year, they have multiple products
and services all at often even different prices for each product or service but
definitely different prices for each of the different products and services.
So there's some kind of calculation that you would do across the
board in order to identify what the total number is in order to calculate
the revenues. On the cost side of the equation you have two categories of
costs, fixed costs and variable costs, and both of these are important in the
operation of the business. Fixed costs in the way that we think about it and
management consulted are stair-stepped costs, so they do increase as a business
grows but not with every single unit delivered, only as the business grows and
it gets to its current capacity would you have to increase fixed costs in the
future. Variable costs - much more easy - they're direct costs that go into the
production or the delivery of a product or service. So when you combine the four
of these areas together, prices and volumes on the revenue side and fixed
costs and variable costs on the cost side, you've got the four key parts of
the profit equation. Now again, you don't just have to memorize these - you really
need to understand them and understanding them is understanding not
only these equations and the numbers underneath them but what influences them -
what changes price, what changes volumes, what effects fix costs, what drives
variable costs in a business. These are the things that you in the second level
of analysis will need to understand, and we go into much greater detail about
this in additional resources that we offer. The third type of framework that's
essential to use is the market study framework. The market study framework
takes the profitability framework and flips it on his head, whereas a
profitability framework is really useful when you understand the internal
operations of a company. The market study framework starts externally and then
moves internally. The result of both of them is the same. You're looking for
profits so for the market study framework - the first three categories: the
market, the competitors, and the customers - all go into helping you get the numbers
that you need to determine the size of a company's revenues. On the internal piece -
the second part of it - you have the company and the product or service - those
two pieces really address the fixed cost with the company and the product your
service really addresses the variable costs. What you're doing here is instead
of starting with an internal look of the company, like you did with the
profitability framework, you're looking externally at the factors that
are going to influence each part of the profitability framework. Almost every
case that can be solved with a market study framework can also be solved with
the profitability framework and vice versa, but it's really helpful to have
both of the tools in your tool belt to help you understand some of the key
influences. The final and forth framework that we're going to highlight today is
management consultants mergers and acquisitions framework. Mergers and
acquisitions cases can be some of the scariest because they're testing things
like finance principles, but the good news is that most consulting firms don't
go deep into multiples and discounted cash flows. They're much more interested
in the due diligence strategy of whether one company should buy another one or
not. Ultimately this comes down to four key areas - the first is the market.
Most buyers don't want to buy a company that's in an unattractive market. So make
sure that as you are breaking down the process and thinking about your clients
concerns, one of the things they'll always look for is a declining market or
a market that's not very big, not big enough to be substantial for their
ultimate revenue goals. The second thing that they'll look at is the company.
So inside a market if they determine they want to play in that market, they want to
make sure they're picking the right company inside the market. How do they
decide? Well often it comes down to the financials - does the company have strong
operating revenues? Does it have good profits? And do you expect some of those
trends to increase over time? (So are they well-positioned against competitors in
the market?) Once you look at the market and then the company and where it plays
in the market, the next and most important part of the structure is a
part that we call post acquisition strategy. Post acquisition strategy ties
the first two pieces together but says once we buy this company, we're going to
do some things differently, and here is going to be the expected result of the
changes. The expected result of the changes is how a company makes more
money than they purchased the original company for in the first place. So the
market and the company valuation really help you identify how much you should
pay; the post acquisition strategy will help you determine how much you can make
over time, whether you hold the cup for cash flows or whether you plan to
sell it in the future. So understanding the post acquisition strategy really can
help you break down what the target company's plans would be if you buy them -
so how you will influence their future as an operating company. The fourth
bucket that we recommend here is really a key bucket, we call it risks and benefits.
Oftentimes in the sale and purchase of a company, and oftentimes
we're representing the buyer as the consulting firm, so in the purchase of a
company, the one key thing that's really difficult to get a handle on is how you
value intangible assets - things like intellectual property or the fit of a
management team. Oftentimes in consulting cases you have to pick some numbers and
use scenarios to identify what is likely to happen after you purchase the
company. So if there are key risks, you want to identify what the worst downside
would be, what the medium case would be, and what the best case would be. If there
are key opportunities you want to do the same thing, what's the maximum value that
this could be worth, what's a medium value, what's the best conservative value
that you want to put into the picture. So across the board the risks and benefits
category is a way to quantify some of the intangible issues that go into
purchasing a case, and we really use it to help you stay focused on the first
three buckets, the financial issues, and make sure that you don't focus too much
on all those intangibles at the end. The mergers and acquisitions framework
really incorporates all of the pieces that we've talked about already. It
incorporates, first of all, an understanding of the market, second of
all, an understanding of the company's current profitability, and third of all,
an understanding of the future profitability of the company in light of
market forces. So enjoy using this framework because it is the most
comprehensive and a really fun one to use. Across the board, we think that these
four frameworks are useful to solve any case that you will ever find in
management consulting case interviews. We hope that you have fun going through the
process of not only memorizing them but making sure that you understand them.
If you have further questions or want additional resources we've got all you
could possibly need on the subject at managementconsulted.com.